Britain is reviewing procedures for issuing arrest warrants in war crimes cases after a diplomatic row with Israel over allegations against its former foreign minister.

David Miliband, the foreign secretary, said tonight the government was "looking urgently" at ways the legal system might be changed following action against Tzipi Livni, Israel's opposition leader, over her role in the Gaza war.

The dispute erupted after Westminster magistrates court in London issued an unprecedented arrest warrant for Livni on Sunday – a move described by Binyamin Netanyahu, Israel's prime minister, as an "absurdity." Miliband said Israeli leaders "must be able to visit and have a proper dialogue with the British government."

Ron Prosor, Israel's ambassador to Britain, said after talks with Miliband: "The British government must take a firm stand to prevent British courts becoming a playground for anti-Israel extremists.

"The current situation is absurd and unacceptable in equal measure. Israelis cannot continually be held hostage by fringe groups of anti-Israel extremists, preventing politicians, businessmen and officers from visiting the UK."

The warrant for Livni's arrest was withdrawn amid embarrassment in the Foreign Office when it was discovered that she was not in the UK. But the fact that it was issued in error – at the request of lawyers acting for Palestinian victims of the Gaza war – did nothing to quell Israeli anger. The Israeli foreign ministry condemned what it called it a "cynical" move.

Livni had been due to attend a conference in London, but her office said she had cancelled two weeks ago. Palestinian sources claimed to have seen her at the event and alerted the lawyers.

Palestinians and an Israeli human rights organisation say about 1,400 people, mostly civilians, were killed in the Gaza offensive. Israel counted 1,166 Palestinians dead and said most were combatants. Israel says it acted in self-defence against Hamas rockets from Gaza. Thirteen Israelis died.

Miliband said in his statement: "The procedure by which arrest warrants can be sought and issued without any prior knowledge or advice by a prosecutor is an unusual feature of the system in England and Wales. The government is looking urgently at ways in which the UK system might be changed in order to avoid this sort of situation arising again."

Earlier, Britain's ambassador to Israel, Tom Phillips, was summoned to the foreign ministry in Jerusalem, and told Israeli officials would not visit the UK until the matter was resolved. Britain's ability to play a role in the Middle East peace process had been damaged, Israel said.

Livni said today: "I have no problem with the world wanting to judge Israel. A problem arises the moment [Israeli Defence Forces] soldiers are compared to terrorists."

In September, pro-Palestinian lawyers tried to invoke "universal jurisdiction" to arrest Ehud Barak, Israel's defence minister. His status as a cabinet minister gave him diplomatic immunity which Livni, a former minister, did not have.

In 2005, a retired general, Doron Almog, returned to Israel without leaving his plane at Heathrow after a tip-off that police planned to arrest him in connection with the bombing of a building in Gaza in which 14 people were killed.